I find headlines like this so boring:
I stress, Owen Smith has said much the same thing of late except he was going to use the money to fund the NHS.
And both are wrong, so I am not being partisan.
I reiterate something I explain in The Joy of Tax. This is that a government that has its own currency does not ever need to tax to pay for public services. That is because it can always print the money needed to pay for them.
What is more, unless it spends first to put the money that only it can create into circulation then none of it will be available to make settlement of the tax bills that it insists be settled using that currency.
Or, in other words, spending always happens before tax is raised and as a result no spending is ever dependent on tax funding; this is a tautological impossibility in fact.
Tax does instead have six very clear but quite different purposes which are:
- Reclaiming the money the government spends into the economy to the extent required to prevent inflation;
- Ratifying the value of money by requiring that tax be settled using the currency the government creates;
- Redistributing income and wealth;
- Repricing market failure;
- Reorganising the economy through fiscal policy;
- Raising representation in a democracy because people who pay income taxes (in particular) vote.
None of these are about funding at all.
I wish all politician would realise this. The reality is that they can always spend so long as they have in place policies for reclaiming the cash they create as a result (which is why the tax gap is such a big issue) and have social and fiscal policies that determine who it is reclaimed from and why.
And whilst Labour politicians continue to get this wrong they also continue to buy into the idea that the economy is akin to a household that must live within its means and do themselves and their cause untold harm as a result.
Is this such a big idea that we cannot now embrace it? Or will it forever deny us the politics, the economics and the economy we need? I wish I could answer that.
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This is part of a larger problem of effectively framing ideas that run counter to the dominant narrative.
Whether it’s Corbyn, Smith, or any other prospective Labour leader–the question that always arises in one form or another is: “How will you pay for this?”
If he were to come out and be completely up front about it–he’d likely be met with incredulity, and mocking derision about the “magic money tree” and how the UK will end up like Zimbabwe.
If he suggests putting up taxes–which has its own rationales regardless of the fact that taxes don’t technically finance government spending–then he’ll be faced with the usual criticisms of “taxing and spending”, of being the “same old Labour”, and of taking money from hard working people.
Which response is the more politically feasible one? Which can be done convincingly in a few soundbites or in a 20 second response to an interrogative journalist? Is there another way around the question?
As much as I’d love for millions of the British electorate to learn about MMT and Post-Keynesian economics–I’m not sure that it’s the role of a political leader to also be an educator. It may for the best to give the sort of answer that fits in with popular beliefs and prejudices–however wrong they are. The education of the public and the change of narrative may have to come from different sources.
I recall a very recent interview BBC interview with John McDonnell. One question he was asked included the premise that “the country has to live within its means”–repeating the cliché uttered by Theresa May earlier–and going on to make a declarative statement disguised as a question that: “it’s the aim of the government to get economy back into surplus”.
It’s a tough environment for a politician who doesn’t have the authority and credibility of an economist on the matter of economics (and even economists aren’t that widely respected), nor the luxury of saying what he thinks because of concerns about public perception, media spin, and the next day’s press headlines.
I agree
But if you’re not going to be radical in word or deed why say you are?
A generous interpretation would be that radicalness in deed is intended, but a fine rhetorical line needs to be troddden to get into the position to put it into practice. Not sure that’s really on Jeremy’s agenda, though.
Framing is an interesting thing: without even getting into the thorny issue of how to educate the public that money is not what they think it is, the fact that “surplus” sounds like a desirable thing means that most never follow through to thinking “but if the government is in surplus, what does that say about *my* finances?”
“People who pay taxes vote”
I found this idea very interesting when reading JoT recently, but can you point to anything hard that suggests people who are taken out of income tax are less likely to vote?
Not whilst on holiday, no….sorry
Isn’t this just a case of being technically correct Richard? The public, i.e. voters won’t ever understand such nuances.
Why not?
Has anyone ever tried telling them?
Richard
Yes, but in the USA.
I’m sure you’re already thoroughly au fait with Warren Mosler’s work, so I imagine that by your question you intended only “anyone in the UK”.
But even Warren’s campaigning hasn’t exactly been a rousing success has it? What was it, 2% share of the vote (if that), twice?
Hi Ewan.
Please read ‘The Pedagogy of the Oppressed’ by Paulo Freire. It’s not a long book by any means but it will unlock a factor or two in relation to your observations above.
3) Redistributing income and wealth;
I don’t understand how this reason is compatible with the idea that Tax does not fund government spending.
If tax was taken from the rich, and used to fund, say libraries or community centres… then this is Redistributing wealth…..but, this is not how it works. However, this is exactly why many are so in favour of austerity. ‘Why should I have to pay for xxxx – its my money, I earned it, they (the poor) should get off their lazy asses and earn some for themselves’. – how many times have we heard this argument. Hence its politically more savvy to introduce tax breaks for the rich, at the expense of more cuts. People are selfish. They don’t want wealth redistribution.
I do agree wholeheartedly that there is a big wealth gap that needs to be addressed. But….there are better ways….than explicitly saying that tax is redistribution of wealth, which so many people are against. Pushing inflation to 3% would move massive amounts of wealth from the rich to the poor….indirectly….and one way to accomplish this is to reduce tax….and start spending improving public services for us all. The public needs to understand that this is entirely possible without having to ‘redistribute’ the wealth.
“Corbyn: I would put up tax’s to fund public sector pay rises”.
This, almost word for word, is redistribution of wealth. Its the idea that will have people accusing you of subscribing to ‘Socialism only works until eventually you run out of other peoples money’ meem, and will cloud the other 5 massively more valuable points you put forward.
And it is precisely what I am saying is not true
Governments liberate wealth in people.
I disagree: we have to make the case for redistribution
We also need to point out that there is a lot of wealth redistribution happening right now, and primarily it is distributed upwards:
– through the exorbitant private rents that poor and middle income people pay, due to the government abandoning social housing;
– through the wasteful siphoning of wealth through inefficiently privatised services such as public transport (rail fare rises anyone?);
– through low pay and tax evasion by big business.
‘…unless it spends first to put the money that only it can create into circulation then none of it will be available to make settlement of the tax bills…’
What about the 97% of money created by banks?
All under licence from the state
There are no banks without its consent
I would suggest government cash creation is much bigger than this supposed ratio suggests but it cancels a great deal through tax very quickly
The ratio is also that of not and coin v electronic and not who per se created it
I have already answered this point
Might you refer to the answer I gave earlier?
the “97% created by banks” is credit, not money. I’ll agree that the difference is slight, but it is there for anyone versed enough to think about it.
Debt (the liability Credit creates) and taxes/fines (liabilities to the state)can be extinguished with credit or money, but only debt can be cancelled though jubilees or bankruptcy. Tax liabilities and fines cannot be cancelled through bankruptcy, if I remember correctly! (not sure about jubilees though!)
I hope that’s about right, I’m sure Richard will be happy to correct me if I’m mistaken.
I assure you taxes and fines are cancelled by nnkruptcy
Indeed, tax is one of the most common causes of bankruptcy
Fair enough, I thought tax owed could only be cancelled by bankruptcy in exceptional (and rare) cases, hence the saying “the only two certainties are death and taxes”
Not true – billions a year are lost this way
Would it help to first educate the electorate on what money actually is? To break out of the ‘the country must live within its means’ strait jacket, don’t you just answer Yes of course. But you then go on to say that money is not our means. The means to create wealth in an economy are:
Infrastructure — transport, communications, IT systems, roads, power systems, etc
Enterprises of all kinds
Organisation
Know-how
Skills
Training
Research & development
Technological innovation
Healthy workforce
Educated workforce
Good housing
A stable democracy
The rule of law
The absence of widespread corruption
And so on.
As I understand it, money is not the economic engine, it’s not even the fuel. All it is is the oil. And because the supply of money is the exclusive right of a financial elite, they have us over a barrel & only supply it when it suits them. At the moment, that is for the purposes of wealth extraction, not wealth creation.
What is actually happening is that we are being forced to live BELOW our means.
You are right
Especially on the oil
Much agree that the integrity of money is so important.
Can it be that difficult to get across?
After all, starting with the simple idea that although John McDonnell might prefer to pay his taxes in McDonnells or Theresa May hers in Mays in fact they both have to pay in Pounds – and that they cannot pay in Euros or Dollars either – forms the basics for a derailing interview when asked about the deficit.
And what has Labour now got to lose by telling the truth?
The only loss might be that those who speak the truth would be unlikely to be offered a job with a bank.
But they might actually succeed in moving the dreaded Overton Window. And that would give them a better chance in an election, so they didn’t need a job with a bank.
It’s a nothing to lose but your chains moment.
That’s why for me, John McDonnell’s meet the economist discussions represent such a missed opportunity both for him, his party and the nation at large.
We are on common ground now
Richard,
This is all good stuff, and I offer the following constructive criticism… To make your argument stronger and more persuasive you also need to proactively explain and debunk the following concerns that would arise from critics and the unpersuaded when reading the above:
– What about inflation?
– What about the value of the pound?
– What about the deficit?
Those are three immediate things that they will think about when reading the above argument, in the sense that, if there is spending without enough taxation being recovered then what about…
If you want to more effectively counter the household narrative you need to pre-empt criticism.
I accept the point
It was a quick holiday blog
But you are right
Agreed. Moreover, it would also need to cover that if the following year the tax gap is too much how will it affect that year’s government spending?
Also, if banks(private or public) can create money out of lending, then in theory,I dont think the government would need to spend first to put money into circulation. It would however need to assert its authority via taxation.
I am not sure I follow the fist point
The second is based on the 97 : 3 idea but that is not right in this context. 97% of money may be electronic but that does not mean 97% is bank made
One of the most useful sites that I have found in debunking the myths that prevail regarding money is this one – https://www.youtube.com/watch?v=bHQCjFebIf8
People that I have pointed it out to have told me that they find it useful because it is primarily visual and cuts out a lot of verbose waffling by use of visuals.
It starts with received wisdom concerning money and step by step debunks all the myths until it reaches the reality of a Sovereign Fiat Currency.
Unfortunately it is American and requires one to substitute words such as Federal Government with British Government and “spigot” with “tap” etc.
I also think it is rather thin in explaining the creation of money as debt by private banks, but certainly I have found it useful nevertheless.
I’ll put my tuppence in here if I may!
-Inflation
Government spending is about deploying real resources in the economy into productive use. Simplistic, but broadly true. So long as there are real resources not being utilised by the Private sector, the Government can spend to put these resources to use without risking inflation (which is, again in simple terms, the bidding up of the cost of resources). Resources include the unemployed and underemployed, of which we still have a significant number!
-Value of the Pound
This is a little trickier. The value of the pound reflects the preference of investors to hold this asset in preference to other financial assets or real goods. There are advantages and disadvantages to trying to maintain parity (export nations, like Germany, prefer a weak currency that increases the value of their output relative to the rest of the world, whereas importing countries like the UK benefit from a strong currency, since that increases the spending power in the rest of the world). What we should avoid is believing that a strong pound indicates a strong economy. Instead, identify what strategy you would deem preferable (net importing or exporting, for example) and support the value based on that. (note, MMT advocates that imports are a good, since the rest of the world would rather hold your currency than the goods and services they produce, and vice versa for exports. This would suggest that a strong currency is preferred, though it’s not as simple as that. Being able to import raw materials and export high value added goods would also form the basis of a strong economy…). I’ll defer my opinion to better learned individuals like Richard here!
-The deficit
Based on the sectorial balances that Richard spoke of recently, the deficit consists of two things – increased financial wealth of the Private sector and increased financial wealth in the rest of the world. Since we have limited control over the latter, and the former is (generally) a good thing for the Private sector (at least, where that financial wealth has supported productive output), it would be better to follow Keynes advice of “look after unemployment and let the economy look after itself” (or the deficit, in this case).
Had a few thoughts while typing this too – the portion of the deficit owed to the rest of the world could be considered as the Government buying the output from other countries for consumption in this country and the part owed to the Private sector (at least, where supporting production) is the Government purchasing output from the Private sector, which would support increased output in subsequent cycles! Where the deficit could be tackled is payments to either the Private sector or the rest of the world that does not support production, i.e. renterism. Examples include housing benefit to the Private rented sector (which could be tackled by rent controls) and interest payments on Government debt. Food for thought?
I have major problems with much of this but no time to explain why
Sorry
Could you supply any pointers to which parts (if not all) you have problems with? I’m trying to improve my understanding of economics, so would appreciate any pointers you could give – the above was based on my current understanding (with limitations)
I appreciate you are on holiday, and it’s hardly your job to educate the likes of me, but any hints on where to start would be gratefully received!
Sorry – no time now
Have a family to spend time with
@ Tony Weston
“People are selfish. They don’t want wealth redistribution”.
So how do you account for the enormous and enduring (over centuries) *popular* legend of Robin Hood? Popular legends and folklore accurately reflect popular values, precisely because they’re un-selfconscious and *not* made-up by “superior” intellectuals.
“People” are NOT selfish, in general. Quite the opposite. “People” also have a keen sense of justice.
When someone claims that Government’s creating new money will be inflationary he has ceded the fact that governments do in fact create money out of nothing. So the reply is to point out that they have agreed to your original claim.
Govenments create near money in the form of Government bonds when they deficit spend. That is all – anything more is illegal for an EU member nation. Here is the relevant extract from the treaty establishing the EU.
Article 101
1. Overdraft facilities or any other type of credit facility with the ECB or with the central banks of the Member States (hereinafter referred to as “national central banks”) in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.
And here is the link:
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A12002E%2FTXT
Have I missed something?
Yes you have
That QE now completely ignores that dogmatic statement
I don’t think I am dogmatic. I have no objection to the adoption of Modern Monetary Theory provided it is implemented in conjunction with full reserve banking. I just object to the dogged and counter factual insistence that Modern Monetary Theory is actual Modern Monetary Practice.
You will note that the EU treaty clause distinguishes between Governments and their central banks rather than regarding them as a single entity. Hence central banks are permitted to create money both in the regular fashion of creating reserves for the commercial banks – but also by way of some third party. Hence monetising the bond of a Green Investment Bank or National Industrial Bank could be deemed legal.
Full reserve banking would be an unmitigated disaster
“Have I missed something?”
The observable operational reality. That’s all…
Well Ed, I don’t see a government overdraft with the Bank of England, and I don’t see the Bank of England directly monetizing government bonds. So how exactly is government spending not financed by tax revenue and bond sales?
Richard
While concurring heartily in everything you say in this article, I suggest it does have one important omission. You and most of us do (rightly perhaps?) castigate the great majority of our politicians for their failure to understand the most basic properties of a modern fiat monetary economy, and their insistence instead on mindlessly chanting the mantras of a byegone gold-standard era.
But so of course (and this is the omission) does the most significant faction of the economics profession itself – including a high proportion of its university teachers/textbook-authors, of those who hold or have held powerful positions in the economics establishment (eg Bernanke, Greenspan…), AND as do some Nobel laureates, no less, who are given a guru-like status by the media by dint of that honour appropriated by the profession for itself as part of its futile quest – by some wit characterised as “physics envy” – to project itself as a science).
I’m referring to the “mainstream”, neoclassical, school.
Although there is a multi-faceted “heterodox” opposition (to which you yourself belong, it hasn’t yet managed to depose the neoclassical mainstream – despite its teaching being almost completely irrelevant to today’s world – from clinging on grimly to the power and influence in high places which it has undeservedly come to occupy.
Why should MPs be expected to be able to distinguish successfully between “good” economics and “bad” when the economics profession itself is in a permanent state of sectarian conflict, sending out a cacophony of conflicting messages? And when even most of those MPs who studied economics at university were imbued there with false doctrine taught out of obsolete textbooks?
Oughtn’t it to be a matter for deep shame for the profession that its supposed leading figures are failing the public, whilst enjoying enormous prestige and six-figure incomes? That one of its supposed luminaries, Nobel laureate Paul Krugman, should unabashedly state in the NYT that he “doesn’t get” that the money multiplier is a myth and that banks create money by making loans without first having matching reserves in place, because he denies (relying upon neoclassical models, despite all empirical evidence showing them to be fallacious) that such is the case? Or that Bernanke should be able to get away with protesting that the GFC could not have been foreseen (because the neoclassical models predicted that it couldn’t happen) – despite a number of heterodox economists using other – much more real-life – models having publicly predicted it as much as two years beforehand?
Isn’t it a prerequisite for at least that small proportion of the electorate which thinks of itself as well-informed, and which may have some part to play in influencing mass-opinion, that the economics profession reform itself, from within, as a matter of the very highest priority?
I accept that there is a massive problem in the profession itself
I am working on it….but don’t ex-etc miracles
Can somebody explain to me what “John F” means when he talks about “Full Reserve Banking,” does he mean that he believes that all money should be backed by gold — surely an impossibility?” As I understand it, the idea of “reserves” dates back to the time when money was backed by the possession of gold held in reserve to exchange for paper notes, and even then it was a scam or bluff.
Fractional Reserve Banking was based upon the idea that only a fraction of money in circulation (about 10%) was backed with an equivalent value of gold. Everybody was led to believe that they could exchange the paper notes in their possession for gold — something that was patently not true if there was only 10% of the value of paper notes held in gold. It only worked as long as the bluff was not called, a situation that became an imminent possibility at the time of the “Great Depression” or “Great Slump,” which had its origins in America in 1929 and quickly spread across the world.
Britain’s world trade fell by half (1929—33), the output of heavy industry fell by a third, employment profits plunged in nearly all sectors. Particularly hardest hit by economic problems were the industrial and mining areas in the north of England, Scotland, Northern Ireland and Wales — hence it was the time of the Jarrow March or Crusade.
Unemployment reached 70% in some areas at the start of the 1930s (with more than 3 million out of work nationally) and many families depended entirely on payments from local government known as the dole. People who still had money in savings lost faith in both banks and the money supply itself, which posed a very real danger of a “Bank Run” – whereby people would try to convert their paper money into gold.
To avert a potential Bank Run, the Bank of England took Britain OFF the Gold Standard on September 19, 1931. From that date onwards in Great Britain, individuals could only convert their banknotes into other similar banknotes and the link between money and precious metals was broken and it was to remain that way until the Bretton Woods Agreement was imposed on Europe by America at the end of the Second World War as the price to be paid for American supplies and support during that war.
In the “Agreement,” the Americans made it a condition that their dollar was to replace the pound as the world’s reserve currency. For much of the world in the 19th century and first half of the 20th century right up until 1945 it had been the United Kingdom’s pound sterling that had been the World’s Primary Reserve Currency. A reserve currency as I understand it means that it is a strong currency widely used in international trade and one that central banks are prepared to hold as part of their foreign exchange reserves. By this means after the Second World War, the American dollar supplanted the British pound which had been the bedrock of international finance and trade for 200 years.
Despite this change imposed by the Americans and for the reasons just outlined, it is an undisputed fact that throughout most of the 1950s, the traditional sterling area (which was made up of 35 countries and colonies pegged to sterling and holding primarily sterling reserves) continued to account for half of world trade. During this time, it was sterling not dollars that still accounted for over half of world foreign exchange reserves. It was a fact which proved that the change was a “power grab” and had not arisen out of necessity – since everybody had retained their faith in the pound despite two World Wars that had drained Britain’s resources. It took ten years following 1945 and an enforced 30% devaluation of the pound, before the share of United States Dollar reserves exceeded that of sterling.
A chief feature of the Bretton Woods Agreement was an obligation for each European country to adopt a monetary policy that maintained a fixed exchange rate by tying or “pegging” its currency to the U.S. dollar. Another interesting feature of the Bretton Woods Agreement was a stated option for banks and governments (but not individuals) to exchange dollars for gold at a fixed rate of 35 dollars per ounce. Since all money was to be “pegged” to dollars and only dollars could be exchanged for gold, it was an attempt to create an illusion of a “Gold Standard” with the American’s in control — so much for a “special relationship” as far as Britain was concerned! It was another bluff, in as much that they believed that governments and banks would always have too much self interest to call it.
After all, Rothschild Brothers of London had once famously said “The few who can understand the system (cheque money and credits), will either be so interested in its profits, or so dependent on its favours, that there will be no oppositions from that class, while on the other hand, the great body of the people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.”
They reckoned without Charles De Gaulle, the President of France, who (being the patriotic and wily old bugger that he was) realised that, as a major trading nation, France was being obliged to hold large numbers of dollars under the Bretton Woods agreement and the Agreement stated that they could be exchanged for gold. In consequence, he demanded that the Americans send him some gold in exchange for some of the dollars that France held – something that one imagines was never really envisaged would happen.
However, fortuitously for the Americans, he resigned in 1969 and died in 1970 before he could try to enforce his demand and in 1971, to prevent future “embarrassment,” Richard Nixon abruptly ended the Bretton Woods Agreement. The link with gold was finally broken. Despite this fact, the Bank of England still hoards large amounts of gold (estimated in June 2015 to be worth £156 billion), which has nothing to do with money, other than impressing the uninitiated and which is traded on the world commodity markets. Hence the wails of anguish from the deluded when Gordon Brown disposed of some gold — something he would not have been able to do if the money supply depended on it.
Ask today about reserves and you are told that they are “held on account,” a code which means they have got some numbers. If people think that numbers are a finite physical possession, I suggest that they write down as many numbers as they can think of, put them in a secure locked box and hide them in a safe place in case they run out of them! Failing all else, they could bury them in the garden!
Interestingly, Google tells me that there is around $60 trillion dollars worth of debt in the world and around £6 ½ trillion dollars worth of gold on the surface – roughly the same proportion or percentage that existed under Fractional Reserve Banking. If “Full Reserve Banking” implies the idea of backing all money with gold today, to implement it would necessitate cutting the world’s money supply to one tenth of its present size. I would be interested to see how that would work out!
Full reserve banking requires that a bank keep all depositors funds in cash ready for withdrawal on demand.
It is nothing like banking as we know it.
It means banks cannot create credit.
It would mean we would have a massive banking and liquidity crisis in our economy
There would be a steady, even, rapid decline in economic activity
It is, bizarrely, what Positive Money campaign for without any apparent awareness of what they am doing or saying
It also means, in effect, full state control if the economy as it alone could create money which those proposing this reform think us something tangible when it is not and never has been
The idea is then about destroying the economy as we know it
Positive Money would not agree
Full reserve banking means that banks can only lend funds deposited with them for that purpose. The depositor choosing to lend their money would be unable to access their money for the agreed period of the loan.
Money kept in current accounts would be backed by full reserves at the Bank of England – thus banks could be allowed to go bust without contagion or threatening the payments system.
Richard is correct when he says that banks would not be allowed to create credit. Bank credit is what we punters use as money, and it is commercial bank lending which creates our money supply.
Thank you for your explanations Richard and John. As I understand the situation, presently banks never lend out money that people have deposited with them.
It is forbidden by the Charters that grant them the right to operate as a bank and the reason is down to the way that money is created as credit/debt.
People are led to believe that banks are “middle men” for money that is created elsewhere and so must first borrow some money before lending the same money out to customers.
In other words, they think that banks invite deposits, keep some aside and lend out the rest.
Banks DO NOT act simply as “middle men” lending out the deposits that savers have placed with them. In reality, PRIVATE High Street Banks CREATE money in the form of bank deposits when they make loans – the way that they do this is the problem.
Nearly all modern money is created as DEBT.
The debt is created using a process called DOUBLE ENTRY BOOK KEEPING in a “BALANCE SHEET ACCOUNT.”
Money is recorded in two columns defined as ASSETS and LIABILITIES.
An “Asset” is a useful and desirable thing or quality that will provide future benefit.
A “Liability” is the state of being legally responsible for something.
A PROFIT and LOSS account is a common implementation of a Balance Sheet Account, which utilises the column headings of INCOME (an ASSET) and EXPENDITURE (a LIABILITY).
When a bank creates a Mortgage, a Bank Loan or a Credit Card, it is entered as an ASSET in the BANK’S ACCOUNT and a LIABILITY in the CUSTOMER’S ACCOUNT.
It is entered as an ASSET in the BANK’S ACCOUNT because it provides the bank with a future benefit — an income stream.
It is entered as a LIABILITY in the CUSTOMER’S ACCOUNT because the customer is held legally liable to pay it back.
However, when an individual opens a Savings Account the opposite applies, it is entered as a LIABILITY in the BANK’S ACCOUNT and an ASSET in the CUSTOMER’S ACCOUNT.
It is entered as a LIABILITY in the BANK’S ACCOUNT because it remains the possession of the customer and the bank is held legally liable to pay it back on demand and also to pay interest.
It is entered as an ASSET in the CUSTOMER’S ACCOUNT because it provides the customer with a future benefit — an income stream called INTEREST.
So banks NEVER lend out money that other people have deposited with them because it is not their money and is something that they are LEGALLY LIABLE FOR, a fact that is enshrined in their Charter!
The one issue I challenge in the time available is on who owns depositor funds
The banks do
They are not the depositors who are just creditors of the banks: if you give a bank money quite emphatically it is no longer yours. It belongs to the bank
0.1% of the population seem to know that
You just have a claim on the bank which it may or may not be able to pay
Today’s reality is that banks DON’T need DEPOSITORS or SAVERS – they need BORROWERS.
Savers have outlived their usefulness from the days when banks multiplied up the value of the gold that was deposited or saved with them.
It is an unfortunate legacy from the days of Fractional Reserve Banking and one which the banks cannot acknowledge or change without blowing the whole scam wide open!